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Looking Forward:

The BC Economy at a Crossroads


A Message from Carole James
British Columbia is blessed with abundant natural capital, strong, vibrant communities
and a spectacular environment. We’re well-positioned to take advantage of the economic
opportunities the new, green economy will bring.
However, our economy is also undergoing fundamental structural changes. The global
recession has created instability and uncertainty. There are growing concerns about our
social condition. And above all this looms the challenge of climate change.
How do we build a strong, vibrant and green economy that creates jobs and generates
the wealth to provide a high standard of living and quality social programs for all British
Columbians?
Our Province, Our Future is an initiative I’m leading to begin a discussion about how we
harness the ideas and talent of British Columbians to build a plan for the future, driven
by the values that make for long-term economic stability: prosperity, opportunity, equity,
inclusion, sustainability.
This discussion paper is the beginning of that conversation.
Authored by Doug McArthur, Professor of Public Policy at Simon Fraser University, the
paper offers a thoughtful analysis of B.C.’s economic strengths and weaknesses, as well
as opportunities. The author poses some important questions to stimulate discussion
and dialogue.
I invite you to join in the conversation. Visit our website, ourprovinceourfuture.bc.ca,
where you will find more information about Our Province, Our Future, and links to a
number of thought-provoking articles. I also encourage you to share your thoughts,
ideas and reactions, post a paper of your own, or contribute to the discussion forum.
Let’s keep the dialogue going. By working together we will find solutions and our
common ground.
Together, we can renew British Columbia’s promise for a better tomorrow.

Carole James
Leader, New Democrat Official Opposition
Author’s Note: The findings, views and comments contained in this paper are solely those
of the author, and he alone is responsible for any errors or omissions.
Looking Forward:
The BC Economy at a Crossroads

Doug McArthur
Professor of Public Policy, Simon Fraser University
A background discussion paper commissioned
by the Leader of the British Columbia
New Democrat Official Opposition
23 April 2010
Introduction Government in the economy
British Columbia’s economy is going through a The economy is in essence the arrangements
major transition. This is part of a larger trend in through which material goods are produced
the industrial world toward more services and and distributed, and through which income and
less manufacturing. But B.C. is also unique in a wealth are generated and shared. While there is
number of ways. a large degree of “self management” in a market
This paper is about the B.C. economy in economy, the underlying structure and results
transition. It argues that value creation is are, to a considerable degree, influenced by
the single most important consideration in government policy. Many important influences
assessing B.C.’s economic transition. Value and on the nature and direction of any economy
wealth creation are not only important to the come from government.
private sector; they must also be the focus of Government policy is driven by ideas of what
government in setting policy to guide and assist is good and what is desired. These ideas are
the transition. rooted in values. As a consequence, values play
The paper explores various dimensions of the an important part in determining the nature and
value creation question, identifies constraints to direction of any economy. Indeed, value creation
realizing maximum value creation, and points to can only be fully understood within the context
possible issues that should be addressed. of values.
There has been lively debate over the last
30 years about the most effective orientation
of government policy if wealth creation is to be
maximized. This debate has had considerable
influence over government economic policy
throughout the world, including in British
Columbia.
In many ways this debate gained momentum
from widely understood failures of economic
policy during the 1970s. At that time, much
was promised from governments based on an
assumption that the economy would sustain
the high rates of growth and stability of the
1950s and 1960s. When this proved wrong and
stagflation set in throughout the world, thinkers
and political leaders understandably searched
for alternatives. These increasingly emphasized
free trade, deregulation of markets, increased
incentives for private wealth creation and
capital accumulation through tax reductions and
subsidies, and a reduced role for government.

 Looking Forward: The BC Economy at a Crossroads


Overall this approach to policy emphasized an active partner with other key institutions.
market-oriented values and a belief that private Smart government is needed in order to
interests should be encouraged to find fuller realize prosperity while valuing other larger
expression through reduced government. social and economic outcomes that contribute
Recently some policy analysts have debated to a high quality of life for all and the long-
whether there is a need to recognize other term sustainability of human life and natural
values and policy goals that transcend ideas systems. The important questions are about how
embedded in the conventional view of markets. government should play that role, and about
Growing inequality, the decline of rural areas, how to achieve the appropriate balance among
environmental concerns and the recession government, civil society and the private sector.
have fuelled interest in these questions. It is The recession of 2008 was for many an
suggested that material production and capital unexpected development. It has re-focused
accumulation are important and address one attention on the need for government and
important aspect of society’s needs, but are just government policy. It is forcing us to examine
one of a number of legitimate goals informed by many assumptions and ideas. The way forward
society’s values. will be difficult. Recovery is underway, but
Others include goals informed by fairness many uncertainties remain. Wealth creation,
and social justice, sustainability of the natural sustainability and equality of opportunity
environment, and meaningful participation in will be of great importance, if there is to be a
all aspects of political, social and economic meaningful recovery and if the future economy is
life. These goals include, but are not limited to to serve human, social and sustainability values.
jobs, opportunity based on substantive equality, The first step in moving forward is to take
fulfillment through individual and community stock. That is what this paper is really about.
development, inclusion of minorities, gender Value creation emphasizes sustaining,
equality and quality government services. cumulative value realized from producing private
Those who ask these questions are not and public goods and services, conserving the
necessarily hostile to private markets. The vast natural environment and natural capital, and
majority recognize the enormous wealth-creation fully realizing human potential. It is thus just as
potential generated by the enterprise and much about conservation and lifting people out
entrepreneurial energy of the private sector. But of poverty as it is about goods production. It
they do ask whether the modern economy can also focuses on the future as well as the present,
meet our broader needs without government and since a narrow short-term emphasis invariably
civil society playing their part in advancing the leads to short-term gain at the expense of
economic interests of citizens. longer-term loss, which is inconsistent with
According to the latter view, part of sustainability. Consequently it is also about
government’s role is to frame and guide wealth creation, since wealth is simply an
economic activity consistent with society’s expression of value created by decisions today
values and these goals. Government must be summed over the present and the future.

Looking Forward: The BC Economy at a Crossroads 


2,500,000
2,500,000
2,500,000
2,000,000

Industry distribution in the British Columbia economy 2,000,000


2,000,000
1,500,000
1,500,000
Employment trends are a good measure of how The following charts set out the changes in
1,500,000
1,000,000
the industry structure of the economy is and employment
1,000,000
1,000,000
that have been occurring in selected
500,000
has been changing. The following charts use sectors.
500,000
500,000
employment data to illustrate some of the most 0
0
important changes over the long and immediate Chart 2: Forestry employment
0

terms. (000’s), 1987-2009


Chart 1 sets out total employment in B.C. 40
40
since 1987. Overall, the period 1987-1997 was 40
35
35
one of relatively strong job growth, as was the 35
30
period 2005-2008. 30
30
25
25
25
20
Chart 1: total employment in B.C., 20
20
15
1987-2009 15
15
10
2,500,000 10
10
5
5
2,000,000 5
0
0 Source: B.C. Stats. ibid.
0
1,500,000

1,000,000 Chart 3: Manufacturing employment


(000’s), 1987-2009
500,000 400
400
400
0
Source: B.C. Stats. British Columbia Employment by 200
Detailed Industries, Annual Averages. 200
200

0
40 0
0 Source: B.C. Stats. ibid.
35

30

25
Chart 4: Construction employment
20 (000’s),
300 1987-2009
15 300
300
10
200
5 200
200
0
100
100
100

0
0
0
400 Source: B.C. Stats. ibid.

200

0
 Looking Forward: The BC Economy at a Crossroads
5
5
5
200
100

100

100
0

Chart 5: Oil and gas extraction The charts largely speak for themselves.
5
employment (000’s), 2001-2009 From this and other data, it is obvious that
5
the B.C. economy has been going through
5
quite a profound shift over the past decade.
0 For instance, forestry and manufacturing have
0 declined, while the growth in jobs has been
0 large in the construction and health services
Source: B.C. Stats. ibid.
industries. Natural gas jobs have increased
although they have been small and surprisingly
Chart 6: Government employment unstable.
(000’s), 1987-2009 Potential problems are evident. Health
services jobs are largely dependent on
200
government financing. Construction jobs tend
200
100
to be short term and cyclical, and are also
200
100 highly dependent upon government financing.
0
100
The long-term sustainability of construction
Source: B.C. Stats. ibid.
0 is thus uncertain. Natural gas, while growing,
0 is not a significant overall job creation sector,
accounting for 2,500 to 3,500 jobs over the last
Chart 7: Health and social services
five years. Gains in natural gas have made a
employment
300 (000’s), 1987-2009
much bigger contribution to government and
300
200 corporate revenues than to jobs. The challenge
300
200 will be to achieve a future balance in job creation
100
200 that maximizes overall value creation in the B.C.
100
economy.
0
100
0
Source: B.C. Stats. ibid.
0

Chart 8: All services employment


(000’s),
2,000
1987-2009
2,000

2,000

0
Source: B.C. Stats. ibid.
0

Looking Forward: The BC Economy at a Crossroads 


Achieving a value and wealth-creating transition
A continuing theme of this paper is that the B.C. The problem is not just one of earnings from
economy is in major transition. Some of this employment; it is also a problem of returns to
transition is similar to other modern developed investment. There are two parts to the value
economies experiencing a relative decline in creation equation – earnings from employment
manufacturing and increase in services jobs. The and return on capital. Together these constitute
challenge for such economies is to maintain high the value generated in a sector.
standards of living by ensuring the mix of new The net economic value, or labour, capital and
jobs includes sufficient long-lasting high value other income created per job in selected sectors
jobs to ensure long-term value creation. of the B.C. economy in 2007 (in constant 2002
The B.C. economy has some unique features dollars) is shown in Table 1.
to its transition as it is currently playing out.
In particular, the renewable resources and Table 1: Net economic value per job,
processing sectors and manufacturing are selected sectors (MILLIONS, 2002
threatened. constant dollars), 2007
All provinces have been experiencing some
relative shift from higher value goods to lower High Tech $119,398
value services. The challenge is to realize an Wood Products 104,049
appropriate mix of activities as services increase Timber Harvesting 93,621
in importance. There are numerous high value Manufacturing 77,236
industries that can help sustain the overall value Tourism 51,153
mix in the economy. It is important to ensure Construction 45,632
that sufficient industries producing higher value Retail 35,824
goods and services are created and/or grow to Food and Accommodation 25,860
compensate for losses in declining industries.
Source: B.C. Stats. B.C. GDP by Industry – NAICS Aggregations.

 Looking Forward: The BC Economy at a Crossroads


The implications for the economic transition There are of course numerous considerations
are of some importance. For an economy in that must be taken into account when pursuing
transition such as British Columbia’s, a sufficient maximum overall value creation. The numbers
mix of higher value-added growth is needed in the preceding table tell an important part
to offset the inevitable growth of lower value of the story but by no means the whole of the
sectors and activities. Each forestry-related story. Maximizing employment is important,
job in 2007 created over $100,000 of net and requires that there be a mix of sectors with
value in the B.C. economy, and the average different value-creation potential, determined
manufacturing job created $77,236. Tourism in part by relative product demands. Non-
jobs created about double the value of jobs in market components of value must be also be
food and accommodation services, and thus are considered. In the case of natural resources,
relatively valuable jobs. Manufacturing jobs do conservation and depletion both have values that
even better. Retail, food and accommodation aren’t included in the values set out in the table.
services created from one-quarter to one-third And there are things such as global warming
that of forestry jobs, and from one-third to half which can be and are value destroying, and thus
that of the average manufacturing jobs. High- must be considered when examining the impact
tech jobs on the other hand – the majority of of activity in various sectors. A number of these
which are in high-tech services – not surprisingly and other matters will be considered in the
actually add net value compared to forestry and following sections.
manufacturing.

Looking Forward: The BC Economy at a Crossroads 


High-tech and tourism
Two sectors of considerable interest in B.C. These sectors combined have experienced a
are high-tech and tourism. These are not relatively good growth rate since the mid-2000s.
traditionally defined sectors, and it is only Together they now provide more than 200,000
relatively recently that the numbers have been jobs, making up about 10 per cent of the labour
available to track the performance of these force. This is a significant proportion of the
two sectors. They are of particular interest in overall labour force and each, in its own way,
B.C. as the province makes the transition to represents important possibilities for the future.
new and expanding sectors, since both have High-tech jobs are high-wage, high value-
been identified as growth sectors able to make added jobs that can help offset the erosion of
a significant contribution to jobs and wealth high-value jobs in forestry and manufacturing.
creation in the future. The ability to capture these jobs will be
important if B.C. is to avoid a drift into low-value
Table 2: Tourism and High-tech production.
Employment (000’s), 2000-2008 On average, high-tech jobs add as much or
more wealth to the B.C. economy as forestry jobs
Year Tourism High-Tech
have in the past. However high-tech job growth
2000 102.4 67.1 has been variable and somewhat sluggish.
Tourism is a significant component of the
2001 109.9 71.6
private sector service economy that has had
2002 110.1 67.1 significant growth. While tourism jobs are
2003 112.2 66.0
somewhat different from high-tech jobs, it
may surprise many to find that tourism jobs on
2004 115.1 68.0 average are relatively high-value jobs, adding
2005 118.5 71.2 over double the value of the average retail
services and accommodation and food services
2006 123.4 77.5
job. Tourism is thus of considerable importance,
2007 129.5 81.1 not only in creating new jobs but in terms of the
contribution to value creation.
2008 131.0 n.a.

Source: B.C. Stats. B.C. Tourism and High Technology GDP


and Employment.

 Looking Forward: The BC Economy at a Crossroads


Culture and cultural industries
Cultural industries are an important source of filled by people with high levels of training and
value creation in the B.C. economy, generating education and high levels of creativity. Cultural
close to 200,000 jobs. This is more than twice sector jobs are generally high value, knowledge-
the number in high-tech and considerably more based jobs. They contribute to the overall social
than in tourism. These are extremely important capital essential to sustainable development. It
to the job performance of the economy. Overall, is of concern that there has been very little job
job gains have been disappointing during the growth since 2000 in this sector, and that job
period, and also quite variable. losses since 2007 are almost certain to be quite
Many of the jobs in cultural industries are substantial given the two most recent budgets.

Table 3: Cultural Industries Employment (000’s), 2002-2007

Year Info/ Publishing Movie Broad- Telecom. Arts & Performing Heritage
Culture casting Enter. Arts Inst.

2002 56.8 11.3 10.2 4.0 26.0 49.2 20.7 2.5

2003 51.4 14.2 11.0 3.4 17.1 57.3 17.6 4.0

2004 57.2 15.1 11.0 4.4 20.3 57.6 21.8 2.4

2005 56.0 15.6 9.3 3.7 18.4 56.1 19.6 3.5

2006 56.1 15.0 12.2 4.3 17.6 57.0 19.4 2.3

2007 61.0 15.3 14.7 3.0 21.2 56.8 19.4 3.1

Source: Statistics Canada. Special Request for NVS, Employment in Cultural Industries.

“The last few decades have belonged to a certain


kind of person with a certain kind of mind. But
the keys to the kingdom are changing hands. The
future belongs to a very different kind of person
with a very different kind of mind – creators and
empathizers, pattern recognizers and meaning
makers. These people – artists, inventors,
designers, storytellers, caregivers, consolers, big
picture thinkers – will now reap society’s richest
rewards and share its greatest joys.”
—Dan Pink, A Whole New Mind

Looking Forward: The BC Economy at a Crossroads 


Wages and earnings
Unique among the provinces, there has been a to the rest of the country. Between 2000 and
decline in average earnings in B.C. over the past 2005, full-time median earnings in B.C. declined
few years. This is a worrying trend because of (after adjustment for inflation). The only other
the importance of high-wage, high-knowledge, province having a decline was Quebec, where the
and high value-added jobs in maintaining living drop was insignificant – less than one-third of one
standards, government revenues and services. per cent. The changes in median earnings for full
Data from the years 2000 and 2005, the last time people in B.C. by occupation are provided in
years for which census results are available, tell Table 4. Comparative figures for B.C., Alberta and
a story of a province in some difficulty compared Canada are contained in Table 5.

Table 4: Full time median earnings (2005 constant dollars), 2000 and 2005

Selected Occupation (B.C.) 2005 2000 % Change

Health Care Assistants $ 35,660 $ 37,977 -6.1 %

Technical Workers 23,983 28,044 -14.5 %

Resource Workers 29,735 33,764 -11.9 %

Manufacturing 32,065 33,586 -4.5 %

Food & Beverage 17,178 20,122 -14.6 %

Senior Management 79,977 77,372 +3.4 %

Business Professionals 54,488 52,360 +4.1 %

All Occupations – B.C. 42,230 43,715 -3.4 %

Source: Statistics Canada. Earnings and Incomes of Canadians Over the Past Quarter Century, 2006 Census.

10 Looking Forward: The BC Economy at a Crossroads


Table 5: Full time median earnings, all occupations, B.C., Alberta and Canada
(Constant 2005 dollars), 2000 and 2005
2005 2000 % Change

All Occupations – AB $ 43,964 $ 40,782 +7.8 %

All Occupations – BC 42,230 43,715 -3.4 %

All Occupations – Canada 41,407 40,443 +2.4 %

Source: Statistics Canada. ibid.

One consequence of the shift in the economy B.C. faces a singular challenge. The earnings
has been the above indicated pressure on gaps indicated above are relatively large given
real earnings. Declining real earnings, both in the reporting period. The reported overall gap
actual and comparative terms, are a reflection in B.C.’s place in Canada can be averted by
of the effects of the transition. BC is falling generating more long-term jobs in alternate
behind, both over time and compared to other higher-wage, high value-added sectors. This,
provinces. This contributes, in turn, to a shift in along with overall productivity gains, is needed
the distribution of income. The overall proportion to maintain the wage and earnings structure that
of families living in poverty has increased has prevailed historically. This is clearly a high
while only a small number are enjoying great priority for B.C. over the next few years.
prosperity. While rewards to professions, senior
managers and investors in the B.C. economy
have been increasing, there has been negative
pressure on ordinary wages due to the internal
structural shifts.

Looking Forward: The BC Economy at a Crossroads 11


GDP in British Columbia and the rest of Canada
The rate of growth of real GDP has been relatively Chart 9: Real GDP of provinces
variable, as can be seen from the table below. per capita (2002 constant
dollars), 2008
Table 6: per cent Real GDP Growth, B.C.
(constant 2002 dollars), 1983-2009

Year % Year % Year %


1983 0.6 1992 2.6 2001 0.6
1984 0.8 1993 4.5 2002 3.6
1985 6.9 1994 2.8 2003 2.3
1986 0.2 1995 2.4 2004 3.6
1987 6.2 1996 2.5 2005 4.7
1988 5.8 1997 3.2 2006 4.2
1989 3.3 1998 1.3 2007 2.9
1990 1.4 1999 3.2 2008 0.0
Source: BC Progress Board. Benchmarks Report.
1991 0.2 2000 4.6 2009 -2.7

If BC is to improve its relative position in


Source: B.C. Stats. B.C. GDP at Market Prices.
terms of GDP, it will be necessary to, among
Part of the explanation for lower real earnings other things, place a greater emphasis on value
is lower gross domestic product (GDP) on a creation.
comparative basis. GDP per capita is well below
the better performing economies in Canada.
16%
GDP is a measure of the dollar value of incomes 14%
and wealth, and thus of the monetary value of 12%

goods and services, created within the economy 10%

during a particular year. As can be seen from 8%

6%
Chart 9, a considerable gap exists between
4%
B.C.’s two nearest western neighbours as well 2%
as with Ontario, whose economy has been itself 0%

struggling over the past few years.

$50 -

45 -

40 -

35 -

30 -

12 Looking
25 - Forward: The BC Economy at a Crossroads
1999 2001 2003 2005 2007
ab can
on bc
ns
pe

0
$

Unemployment and labour markets


The unemployment rate in B.C. reached historic Chart 10: B.C. Unemployment Rates,
highs in the late 1980s and early 1990s and then 1976-2009
progressively declined throughout the 1990s.
16%
After increasing again in the early 2000s, it again
14%
began a decline in 2003 that levelled off in 2007
12%
before sharply increasing in 2009.
10%
Youth unemployment, currently at 8%
approximately 13 per cent, is a particular 6%

concern. 4%

A value-maximizing economy must create 2%

sufficient jobs to reduce unemployment as 0%

Source: BC Stats. Labour Force Activity for British


much as possible. The ability to restore the Columbia and Canada - Annual Averages.
unemployment rate to such a level is a major
challenge in an economy in transition.

$50 -

45 -

40 -

35 -

30 -

25 -
1999 2001 2003 2005 2007
ab can
on bc

2.5% -

2.1% -

1.7% -

1.3% -

0.9% -

0.5% -
1998 2000 2002 2004 2006
ab can
on bc

Looking Forward: The BC Economy at a Crossroads 13

16%

14%

12%
Resources in the British Columbia economy
In order to fully appreciate the direction century the single most important contributor to
of the B.C. economy, it is important to pay B.C.’s ascendancy within the Canadian economy.
special attention to the resources sectors. Mining was always a considerable but lesser
The B.C. economy is, as with all economies, a source of wealth and employment.
product of its history, its people and its natural All of that has changed. The renewable
endowments. Land and resources were for a very resources sectors of B.C. are in decline due to
long time the primary source of prosperity for unsustainable management and other policy
many and the source of great riches for some. and industry failures. Natural gas, and to a
The fishery, now in serious if not fatal decline, lesser extent mining, are displacing renewable
was at one time at the core of the B.C. economy. resources in importance. The changing position
Forestry, always a source of considerable wealth of resources in the provincial economy is
creation, became by the third quarter of the last described in the following tables:

Table 7: Resources Sectors Net Value of Production ($millions, current), 1997-2006

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Forestry $3,185 $3,272 $2,919 $2,584 $2,344 $2,713 $2,487 $2,841 $2,809 $2,641

Fishing, Hunting 201 138 130 140 104 134 133 142 138 131
and Trapping

Oil and Gas 1,080 803 1,239 3,380 4,161 2,826 4,825 5,160 7,300 6,330

Mining 1,289 1,143 1,007 1,051 1,227 1,233 na na 3,258 3,765

Wood Products 3,634 3,189 4,459 4,225 3,623 3,979 3,465 4,910 4,194 3,765

Paper 1,599 1,374 1,723 2,517 1,727 1,453 1,233 1,575 1,678 1,792

Source: B.C. Stats. B.C. GDP by Industry – NAICS Aggregations.

14 Looking Forward: The BC Economy at a Crossroads


Pine beetles have devastated the forests of the
Table 8: Resources Sectors
Interior, while over-harvesting has laid waste
Estimated Net Value of Production
the coastal and Vancouver Island forests. The
($millions, current), 2007-2009
Softwood Lumber Agreement with the United
2007 2008 2009 States, restricting and penalizing the export
Forestry $2,456 $2,059 $1,441
of softwood lumber, has made an already bad
situation worse. Forestry is being subject to the
Oil & Gas 6,320 6,580 4,500 largest job cuts in any sector in the 2010 B.C.
Mining 3,686 3,577 2,503 budget.
There are limited prospects for improved
Wood Products 3,528 2,888 2,021 conditions in forestry. There is a developing
Paper 1,785 1,598 1,199 interest in the utilization of forest residue fibre
in the production of electricity. New prospects
in China and a housing recovery in the United
Source: B.C. Stats. B.C. GDP by Industry – NAICS Aggregations States are also possible sources of improvement,
and Author’s Estimates.
but neither is likely to bring dramatic change
in the near future. Value-added wood products
The decline in important parts of the resources manufacturing has always been a goal, but it
sectors is a matter of considerable concern. The remains elusive. The continuing challenge in
shift from the wood-based sectors to the gas forestry is to find new value-added opportunities
and minerals sectors evident from the statistics as the transition proceeds.
has potential implications in terms of wealth
creation, jobs, sustainability and regional
development.
As recently as the late 1990s, forestry
contributed directly and indirectly to over 35 per
cent of the annual income and wealth generation
in B.C. It is now a shadow of what it was then.
The impact on jobs and private wealth creation is
unprecedented in B.C.’s history. Forestry-related
revenues to the B.C. government in the form
of stumpage and various taxes are less than
one-fifth of what they were in the 1990s. Timber
harvesting jobs are in free fall – to about one-
third their number in the mid-1990s. Mills have
closed all across the province and more closures
are expected over the next two to three years.

Looking Forward: The BC Economy at a Crossroads 15


Sustainability and the green economy
Sustainability will be a necessary goal for all The transition in the B.C. economy will
future economic development. This will require necessarily have to include within it a transition
that all value-creating activity be assessed to reduced carbon dependency and adaptations
in terms of environmental and other related in response to global warming. Global warming
impacts. There is considerable room for concern is and will continue to be value destroying, and
about the extent that an economy overly- thus undermines value creation. With the pine
dependent on construction, mining and natural beetle kill, B.C.has already experienced one of
gas accords with good sustainability goals. The the single largest destructions of value in the
actual value created on a full accounting basis world as a result of global warming. Others are
may be much less than that expressed by the occurring in a less dramatic way. B.C. must join
current method of reporting. in an aggressive and coordinated world-wide
Green energy is also recognized as important shift away from carbon dependency if such
to a future high-value economy. Again however, affects are to at least be ameliorated. Effective
there is considerable concern that many of the regulation and new technologies applied to
private hydro developments in the province slightly more than a dozen major industrial
have significant environmental impacts not high-carbon emitters, tough restrictions on
being accounted for, and that their success is internal combustion emissions in the transport
also dependent on value-destroying time-of- sectors, and a much more aggressive pursuit of
year specific low-value exports that will require conservation in space heating would go a long
subsidization from hydro users. If these concerns way toward altering B.C.’s carbon dependency.
are valid, many of these projects will not meet Other policies can also contribute.
the standard of high-value creation. Most agree that part of the solution
Carbon emissions are, of course, a great must be to shift the B.C. economy to a much
concern. Society faces a monumental challenge “greener” base. This is needed not only
in reducing greenhouse gas emissions. There is to reduce greenhouse gases, but also to
widespread agreement on the need for dramatic compete with economies in Europe and Asia
measures to address this problem. Given the who, as early adopters, threaten to move
magnitude of the measures required, questions well ahead in the transition to a more energy
arise as to the form that greenhouse gas policies efficient economy. This means not only greater
must take and what such policies will mean for efficiencies in the consumption of energy, but
the evolving economy. also major investments in the production of
new technologies that will make dramatic gains
possible.

16 Looking Forward: The BC Economy at a Crossroads


Two things in particular are happening in
Europe and China: the rapid development and
production of new technologies, and the rapid
installation of these new technologies in goods
and services production. Many nations and
jurisdictions are pursuing industrial strategies
that will generate rapid growth in the production
of green technologies. To date, there has been
only limited progress in B.C. The main focus has
been on subsidies for private electrical energy
for export, which will do little to encourage
adaptation in industrial production within
the B.C. economy itself. The development
and production of green technologies that
will generate fundamental industrial shifts in
B.C. requires immediate support. It is difficult Many modern economies count on deriving
to obtain reliable data on the current size of considerable strength and diversification through
economic activity related to these technologies. developing the green technology sectors. There
The B.C. government reports that B.C.’s clean is a real risk the early adopters will dominate
technology sector includes over 250 companies these important, high value parts of the economy
employing about 3,700 people.1 This is an of the future, leaving the latecomers at a real
extremely low number and it is not clear what disadvantage. Decisions need to be made soon
is included or even what the source of the as to B.C.’s commitment to participation in these
number is. opportunities, if we are not to be left behind.
In part, the pace of green technology While new legislation is promised, it is unclear
production reflects the need to address the how this will address the two fundamental needs
second strategy named above – the financing referenced above.
of investments that support the development
and adoption of green technologies. Most
jurisdictions are devoting significant resources
to funding research and development and to
adopting the new technologies. B.C. is behind in
this regard, raising the question of how more can
be done.

Looking Forward: The BC Economy at a Crossroads 17


Farming and agriculture
B.C. has a large market for food products and a agriculture utilization. Thus ALR land is clearly
rich land base. Farm production employs about being purchased by entities, expressly to hold for
35,000 people, or almost two per cent of the speculative investment purpose, fully expecting
labour force. Food processing employs another the ALR to break down in the near future…
25,000 people. Both have been relatively Other ALR designated holdings are utilized for
stagnant in terms of job growth. A substantial low-intensity agriculture and produce low-value
portion of farmland is protected for agricultural per acre crops such as Christmas trees or horses.
use in the Agricultural Land Reserve (ALR). These two factors significantly undermine our
Most studies and reports agree that B.C. efforts to actualize regional food security and to
has considerable potential but underperforms maintain agriculture sector economic vitality.” 2
badly in realizing its potential from farmland There is considerable potential for value
and agriculture. The protected land base creation in the farm and food economy. Much of
has been eroded by industrial and urban this potential can be realized through serving
development, and many are concerned about the local and regional economy. The realization
further incursions. There is also concern about of B.C.’s full potential in farming and food
the erosion of the productivity of the land within production will require that the issues above be
the ALR. A recent report states it well, saying discussed and addressed.
“the preponderance of ALR lands near urbanized
areas have been purchased at values orders of
magnitude higher (reaching $100,000 per acre or
more) than justified by any form of conventional

18 Looking Forward: The BC Economy at a Crossroads


Exports from the British Columbia economy
British Columbia has long looked to exports and Alberta all have had substantial growth
to develop and sustain its economy. While in exports over the period, while B.C. has
forest products markets have been particularly changed hardly at all. BC is also eighth in
badly hit over the past couple of years, B.C.’s provincial rankings in terms of international
export performance has been sluggish for a and interprovincial exports. The failure of B.C.
number of years. The following table traces the exports to keep pace suggests a potential threat
export patterns for selected provinces since to a prosperous future, given the importance of
2005. As can be seen, Manitoba, Saskatchewan exports to economic success.

Table 9: Exports by province ($millions, current), 2005-2008

Year On MB Sk AB BC

2005 229,796 12,821 17,102 88,345 48,658

2006 228,019 14,027 17,934 89,992 49,487

2007 227,760 16,311 20,357 92,323 49,649

2008 216,401 16,179 28,284 116,580 49,942

Source: B.C. Stats. Interprovincial and International Trade.

Looking Forward: The BC Economy at a Crossroads 19


$2002 Canadian
6%

4%

2%

0%

The productivity challenge


Productivity
16% is widely recognized as important to A continuing shift to lower-value production,
maintaining
14% standards of living and the overall the weak export performance and under-
$50 -
well being of the population. B.C. has a serious
12% investment in research and development and
45 -
productivity
10% problem. On a comparative basis, high value-added technology have resulted in
8%
productivity is below Alberta, Ontario, and the relatively
40 - poor productivity gains.
6%
Canadian average. B.C.’s relative productivity, as The
35 -
following chart illustrates B.C.’s
4%
well as absolute productivity, fell between 2005 substandard performance in research and
2% 30 -
and0%2008. The following chart illustrates B.C.’s development. Research and development
relative position compared to Alberta, Ontario expenditures
25 -
1999
are
2001
well below
2003
Ontario
2005
and the rest
2007
and Canada overall. of the country,ab although canthis is one area where
on bc
B.C. outperforms Alberta.
Chart 11: Productivity trends (2002
constant dollars per hour worked), Chart 12: Comparative research
1999-2007 and development expenditures
$50 - as percentage of GDP, 1998-2007
45 -
2.5% -
40 -
2.1% -

35 -
1.7% -

30 - 1.3% -

25 - 0.9% -
1999 2001 2003 2005 2007
ab can 0.5% -
1998 2000 2002 2004 2006
on bc
Source: B.C. Stats. Provincial Comparisons of Various ab can
Performance Indicators. on bc

Source: BC Stats. ibid.

In a 2006 report, the B.C. Progress Board Three things are needed to significantly
deplored the province’s “mediocre productivity improve
16% productivity: investment in new
performance, sixth in Canada for real GDP per high-value
14% technologies, improved export
2.5% -
hour worked.” performance and a reversal of the shift to low-
12%
2.1% - 10%
A related factor is B.C.’s relatively weak value production. Low productivity translates
8%
export
1.7% - sector. In 2004, B.C. posted eighth rank into low-value production. Increased productivity
6%
among
1.3% - the provinces for exports of goods and is essential to creating a value-maximizing
4%
services
0.9% - per capita. 3 economy.
2%

0.5% - 0%
1998 2000 2002 2004 2006
ab can
on bc

16% 18% -
20 14% Looking Forward: The BC Economy at a Crossroads
16% -
12%

10% 14% -
8%
12% -
Business clusters The diversification imperative
One fear associated with the decline of forestry Many of the trends discussed in the previous
and its sub-sectors is the loss of the most sections are a source of real concern. It is well
important “business cluster.” Clusters are understood that modern industrial economies
geographic concentrations of interconnected can only prosper by fostering ever higher value-
processors, manufacturers, suppliers and creating sectors. The challenge is to get the right
research institutions networked economically value mix of sectors and activities in order to
through economic associations and retain its position relative to the rest of Canada
dependencies around a particular core sector. and the world.
A 1999 study by B.C. Stats suggested that Unfortunately, government exacerbated
that the forestry cluster accounted for about the situation in the pre-recession period by
one-third of B.C.’s wealth generating activity. re-enforcing a construction bubble through
Today that cluster has virtually imploded. Some unprecedented infrastructure spending. This
economists such as Paul Krugman argue that was particularly detrimental to the fortunes of
clusters are essential to success in the modern manufacturing and high-tech by inflating internal
global economy. Clusters uniquely increase costs of labour, materials and equipment. At the
productivity, which companies need to compete same time, housing construction, natural gas,
nationally and globally. An important policy and consumption spending occupied a much
question is whether the decline of the forestry larger place in the economy. Overall the economy
cluster is fatal, and what B.C. needs to do to became less diverse and more concentrated over
establish alternate clusters in the face of the the last few years.
decline in forestry. Diversification acts as a kind of insurance
One apparent cluster that has done well is against potential instability and a possible
that related to the film industry. Government permanent downturn in concentrated activities.
policy, skilled workers and local suppliers and It also provides the basis for a more diverse
facilities have carefully nurtured this cluster. It is pursuit of opportunities to assist the transition
important to continue the support for this sector so as to maintain a high-wage, high value-added
and perhaps to look to it for lessons learned, if economy.
other sustaining clusters are to be created. Diversification directed at strengthening
value-added activity could go a long way to
addressing many of the problems arising from
structural change while stabilizing the economy
to protect against the negative impacts of
pursuing narrowly-defined growth opportunities.
Diversification of the B.C. economy is an
imperative if long-term sustainability is to be
realized.

Looking Forward: The BC Economy at a Crossroads 21


Inclusion and value creation Inclusion and value creation
– small business – the two economies
The small business sector is extremely One of the disturbing developments in the B.C.
important in the B.C. economy. A total of 391,300 economy has been the sharp divide that has
businesses were operating in British Columbia developed between the large urban areas and
in 2008. Of these, 384,300, or 98 per cent, the rural and more remote areas of the province.
were small businesses. Fifty-five per cent were In general, the former includes metropolitan
operated and staffed by owner operators with Vancouver and the Fraser Valley, Victoria and the
no paid staff. The number of small businesses in Lower Island, and the Okanagan regions.
B.C. declined by 0.1 per cent between 2007 and The rural and remote areas tend to share
2008. a number of characteristics (although the
Small business accounts for 46 per cent of northeast region differs in significant ways):
employment in B.C., followed by large business
at 36 per cent and the public sector at 18 • High resources dependency.
per cent. B.C. leads or is near the top among • High unemployment.
the provinces with respect to small business
• Low average earnings and incomes.
employment (including self-employment),
growth of small businesses and value generated • Low population density.
by the small business sector. 4 • Declining population.
The largest two concerns of small business • Out migration of young people.
operators in B.C., as reported in a March survey
• Declining political influence.
by the Canadian Federation of Independent
Business, are the state of the overall economy • Declining government and community
and access to working capital financing. 5 services.
These will both be of major importance if this • Mill closures.
critical part of the business community is to • Vulnerable property tax bases.
contribute its full potential to the B.C. economy.
• High proportion of smaller communities.
A strong, vibrant small business sector will be
critical to both the recovery and to longer-term • Lower investment on a per capita basis.
value creation in the economy. It will be critical • Significant First Nation populations.
to ensure the credit crisis does not result in a
continuing problem in financing small business.

22 Looking Forward: The BC Economy at a Crossroads


ab can
on bc

30% -

28% -

26% -

24%--
2.5%

22%-- Negative earnings differentials in rural


Unemployment
2.1% rates are particularly high in
the20%
rural
-
1.7% - areas of the province. It is in these areas regions compared to the BC average of $34,978
that
18%the
1.3% -
- most serious and difficult employment were large in most regions in 2005. It is also
creation
16% - issues must be addressed. The likely that the differentials have increased after
0.9% -
unemployment
14% - rates in the Cariboo region for 2005, as the forestry sector in particular has
0.5% - 2000 2002 2004 2006 2008
the years
1998 1995-2009
2000
ab are set
2002 out in the
can2004 2006following declined.
chart. ab
on can
bc Overall, the rural communities are defined
on bc
by challenging economic prospects and deep
Chart 13: Cariboo Region concerns about the economic and social
Unemployment Rate, 1995-2009 conditions of the future. Rural unemployment
30% -
16% is high, and investment in rural areas is
14%
25% - lagging. Most communities are considered
12%
by the residents to be good places to live and
20% -
10%
raise families, but there is deep concern about
8%
15% - whether this will be sustainable for future
6%
generations.
10%
4% -
Survey data and anecdotal evidence supports
2%
5% -
the view that the residents of many rural
0%
Source:
0% - BC Stats. Labour Force and Related Rates. communities feel government cares less and less
low med high
about their well being. There is a growing sense
Incomes are also generally lower in the rural of marginalization and isolation. There is also
regions. concern about the viability and sustainability of
communities. Many people hope for and want
18% -
chart 14: average Employment government to devote attention to the problems
Income,
16% - BC Health Regions, 2005 before it is too late. The assets and capacity are
there to create value, but it must be enabled
14% -
$40,000 - through effective policy.
34,163
33,831

bc avg. $34,978
35,000
12% --
28,359

30,000 -
22,337
20,426

20,688

21,298

25,000
10% --
20,000 -
8% --
15,000
10,000 -
6% --
5,000
2000 2002 2004 2006 2008
0-
1 ab 2 3 4
can 5 6 7
onVancouver Island
1 Central bc 5 Northern Interior
2 Kootenay/Boundary 6 Northern Sunshine
3 Okanagan Coast/Garibaldi
4 Thompson/Cariboo/Shuswap 7 Northeast

Source: BC Stats. Social-Economic Profiles. Health Service


Delivery Areas.

30% -

28% -
Looking Forward: The BC Economy at a Crossroads 23
26% -

24% -

22% -

20% -
Inclusion and value creation –
the importance of aboriginal people
Unemployment rates and income gaps are severe Average incomes of aboriginal people
for aboriginal people, who are disproportionately are substantially below those for the general
resident in rural areas. The following tables population. This is illustrated again from the B.C.
contain comparative rates of unemployment on-reserve First Nations population and from
and median incomes in 2005 for the total B.C. examples from the Cariboo region, where median
population, the on-reserve population in B.C. reserve earnings are less than half of the median
overall, and the rates for five Cariboo reserves. earnings of the B.C. working-age population.
Provincially and in the Cariboo, First Nations Aboriginal people, and aboriginal youth in
unemployment rates are at least four times particular, make up a substantial part of the
greater than those of the general population. employable work force in B.C. As such, they are
a major asset in terms of future development
Table 10: unemployment rates, 2005 and wealth creation. It will be essential to
improve the degree to which aboriginal people
Geographical Area Unemployment Rate
are included in the active economy. The situation
British Columbia 6.0 %
must be addressed in the urban as well as the
British Columbia 25.0 %
rural areas.
All Reserves
Throughout the province and in the rural
Cariboo Reserve #1 29.2 %
areas in particular, the unresolved issue of land
Cariboo Reserve #2 25.0 %
title and resource interests of First Nations
Cariboo Reserve #3 28.6 %
people remains an important matter to be
Cariboo Reserve #4 14.3 %
resolved. The failure to reach agreements
Cariboo Reserve #5 32.4 %
with First Nations acts as a large deterrent
Source: Statistics Canada. Special Interest Profiles, 2006 to investment, particularly on what are now
Census. designated as crown lands. There has been
limited progress in treaty making, but much
more is needed.

24 Looking Forward: The BC Economy at a Crossroads


Resolving the First Nations lands and
Table 11: median incomes, 2005
resources questions will release immense
Geographical Area Median Income amounts of badly needed wealth and job
British Columbia $28,327 creation all across the province. And the benefits
British Columbia 15,293 of reconciliation extend well beyond investment
All Reserves
and development. Certainty of title will improve
Cariboo Reserve #1 10,292
the overall social and economic environment,
Cariboo Reserve #2 10,292 improve the management of land and resources,
Cariboo Reserve #3 14,240 and encourage an overall accommodation
Cariboo Reserve #4 15,008 between aboriginal people and the rest of the
Cariboo Reserve #5 11,680 people of B.C.
Conflict and uncertainty have too long
Source: Statistics Canada. Ibid.
been an endemic part of the relationship. The
conditions are now right for real progress to
change all of that, through agreements that
result in a full partnership between First Nations,
government, and industry. The gains in terms
of value creation would be very large. A recent
report estimates $10 billion of value-added, and
some studies suggest the number could be much
higher. 6
At the same time that reconciliation is
pursued with First Nations, much more must
be done to capitalize upon the contribution
of urban aboriginal people. A recent report
by the Environics Institute shows the urban
aboriginal population in B.C. is large, committed
to urban life, and positive about its place in B.C.
society. 7 Much more can be done to ensure full
inclusion of this important component of the
B.C. population. This too would result in a larger
increase in value creation in the B.C. economy.

Looking Forward: The BC Economy at a Crossroads 25


Inclusion and value creation – addressing poverty
British Columbia has a poverty problem. Table
Table 12: percent Below Low Income
12 sets out comparative percentages of those
Cut-Off, B.C., Alberta and Canada
below the low-income cut-off, which is commonly
(After Tax), 2000-2007
used to define poverty, for B.C., Alberta and
Canada. As can be seen, B.C. lags Alberta and Year Canada AB BC
the Canadian average. The gap between Alberta 2000 12.5 % 11. %1 15.1 %
and B.C. has become progressively larger. While
2001 11.2 % 10.0 % 14.1 %
data are not yet available, poverty rates have
almost certainly increased after 2007 as a result 2002 11.6 % 9.4 % 6.0 %
of the recession.
2003 11.6 % 10.7 % 15.4 %
Progress in reducing poverty contributes
considerably to value creation in that lower 2004 11.4 % 10.6 % 14.1 %
levels of poverty are accompanied by improved
2005 10.8 % 8.5 % 13.0 %
labour force participation and greater
employment success. Investments in poverty 2006 10.5 % 7.0 % 13.0 %
reduction among families have particularly high
2007 9.2 % 6.1 % 11.1 %
pay-offs. The lower the poverty rates are for
children, the more successful they are as adults
Source: Statistics Canada. Cansim Table 202-0802.
in terms of work and earnings. Single-parent
families headed by women have a particularly
high incidence of poverty and thus should be the
subject of special consideration.

26 Looking Forward: The BC Economy at a Crossroads


Inclusion and value creation – immigration
Immigration has long made a positive visible minority group. The vast majority will be
contribution to the B.C. economy. In particular, of Chinese or South Asian descent and a large
although not solely, immigrants from China proportion will be relatively new immigrants. It
and South Asia have provided much needed will be a relatively young population, with the
additions to the labour force and have median age being about eight years younger
contributed significant amounts of investment than the overall population. 9
capital. Considerable government and private sector
In 2005, there were 1,119,200 foreign-born attention and effort will be needed to ensure
individuals in British Columbia, accounting immigrants are fully brought into the mainstream
for 27.5 per cent of B.C.’s population, up from of the economy, and to maximize future
26.1 per cent in 2001 and 22.3 per cent in 1991. investment flows from immigrant populations.
Many sectors have gained from the contribution The value creation resulting from immigration
of immigrants. The buoyancy in residential will be large. Recent studies indicate, however,
construction for instance has relied to a that new immigrants are not being as fully
significant degree on investments in housing by included in the economy as once was the case,
immigrants and foreign residents. These inflows and that the potential value realization would
have made possible considerable increases be much higher within an improved policy
in wealth of homeowners, which in turn have framework.
stimulated rapid increases in consumption. This
has added substantial buoyancy to the B.C.
economy over the last few years. 8
A continuation of immigration consistent with
that of the 1990s and 2000s will be important to
B.C.’s economic development. By 2017, Statistics
Canada reports British Columbia will be the
province with the largest proportion of visible
minority persons. Nearly one of every three
people living in British Columbia will belong to a

Looking Forward: The BC Economy at a Crossroads 27


2.5% -

2.1% -

1.7% -

1.3% -

Equal opportunity 0.9% -

and value creation A0.5%


skilled
-
1998
work
2000 2002
force
2004 2006
ab can
A value-creating economy will provide The unemployment
on
rate is not
the only concern
bc
opportunities to all of its people consistent with with respect to the labour market. Another is
their abilities and potential. Too many small ensuring future labour demand is met by the
businesses are struggling. Unemployment and necessary supply of labour with the right skills
16%
sub-par incomes are too high among rural, and training.
14%
aboriginal and immigrant populations. Income The college and university systems in B.C.
12%
inequality is growing in B.C. as is the incidence have performed very well in preparing people for
10%
of family poverty. future opportunities in B.C., as can be seen from
8%
Poverty contributes to the exclusion of the following chart. B.C. outperforms Alberta,
6%
people from access to the avenues needed to be Ontario and Canada overall in the percentage of
4%
opened in order for them to become productive people
2%
age 19 to 24 with a college or university
members of society. An equal opportunity degree,
0% diploma or certificate.
society is one in which there is a commitment to
equalizing both opportunities and capabilities Chart 15: Share of 19-24 year-olds
to access opportunities. Government has a without degree, certificate, or
responsibility to ensure that is the case. The pay- diploma, 2000-2009
off is that each and every person can and will add
18% -
maximum value to society’s economic activity.
Income assistance, spending on education 16% -

and training, and the provision of government


14% -
services to help people overcome barriers to
economic participation, are value-creating in 12% -

economic terms and need to be part of any 10% -


successful transition.
8% -

6% -
2000 2002 2004 2006 2008
ab can
on bc

Source: B.C. Stats. Provincial Comparisons of Various


Performance Indicators.

30% -

28% -

26% -

24% -

22% -

20% -

18% -

16% -
28 14% -
Looking Forward: The BC Economy at a Crossroads
2000 2002 2004 2006 2008
ab can
on bc
16% -

14% -

12% -

10% -

8% -
Savings and debt
6% -
B.C. has also
2000 2002
done quite 2006
2004
well in 2008
terms of B.C. is unique in another important respect.
university graduation,
ab ascan
can be seen in the Some of the buoyancy in the B.C. economy has
on bc
following chart. been fuelled by a much lower rate of savings,
and thus higher consumption expenditures,
Chart 16: Share of population 25 compared to the rest of the country. Indeed
years and over with a degree, citizens in B.C. have been net borrowers while
2000-2009 the rest of Canada has had a positive savings
30% -
rate, even during the difficult recent years
28% -
leading into the recession.
26% -
Table 13: Savings rates as percentage
24% -
of income, British Columbia and
22% -
Canada, 2007 and 2008
20% -

18% - 2007 2008


16% -
% of Income

14% - British Columbia -5.9 % -3.4 %


2000 2002 2004 2006 2008
ab can
on bc
Canada 2.5 % 3.7 %

Source: B.C. Stats, ibid.


Source: B.C. Stats. Personal Income and Savings Rate, 2007 and
2008.
However some concern has been expressed
30% - The fact that B.C. residents have been
that if there is a reasonable recovery from the
spending more than they have been taking in as
recession,
25% - there could be significant shortages of
income has added to the expansionary impact
labour by 2015 in certain high-skill occupations.
20% - of construction, infrastructure and natural gas
The transition to specific high-value sectors
15% - over recent years. Negative savings rates for a
could very well be impeded because there are
province or a country as a whole are somewhat
not10%sufficient
- skilled and educated candidates
unusual, although the United States had a
for 5%
the- jobs essential to the transition. The
history of negative savings in the years leading
problem, if there is one, will be one of job
0% - up to the recession.
matching rather
low than the medoverall levels
highof
education and training. Whether this happens
depends almost exclusively on whether the
training system prepares enough people for the
jobs that will be required.
A failure to prepare potential workers for
high-value jobs can seriously impede value
creation.
$40,000 - A meaningful training plan for the post-
34,163
33,831

bc avg. $34,978
35,000 -
recession economy is necessary if the B.C. labour
28,359

30,000 -
22,337

force is to be prepared for the demands of the


20,426

20,688

21,298

25,000 -
next
20,000decade.
-
15,000 -
10,000 - Forward: The BC Economy at a Crossroads
Looking 29
5,000 -
0-
1 2 3 4 5 6 7
1 Central Vancouver Island 5 Northern Interior
2 Kootenay/Boundary 6 Northern Sunshine
3 Okanagan Coast/Garibaldi
Value creation and
non-market values
In part, the negative savings can be explained It is important to note not all value creation
by the rapid increases in house prices, creating involves market values. In many cases, markets
what is known as a “wealth affect” on spending. do not correctly articulate important values of
Over the longer term negative saving rates are people and society. This is the reason for many of
not sustainable, since they are only possible the public goods that government provides.
through ever-increasing debt loads. There is a Markets cannot or do not efficiently organize
widespread expectation that a correction is due the provision of roads, water and sewer, policing,
in debt accumulation, in which case the affect of many health services, defence, schooling, and
spending on growth will be reduced. This could many other goods and services of great value.
assist in financing the investments needed for a Markets also fail to express the full costs of
value-creating transition, but it will also reduce environmental damage and the full value of
the stimulating affect of high consumption public resources, traditional harvests and
expenditures. natural systems. Market values also often fail
to fully express the value of social services
and of community activity. The responsibility
for recognizing and articulating non-market
values falls primarily on government. It is also a
significant responsibility of civil society.
Government spending decisions on goods
and services should thus also be about value
creation and maximizing value. Governments
must see that there is an appropriate mix
of activity in this regard. Some argue that
government spending is too large and negatively
affects value creation. Such arguments are
largely premise driven, deductive and impossible
to prove one way or another. However, it is
important that they be acknowledged in the
context of value-creation strategies.

30 Looking Forward: The BC Economy at a Crossroads


Government finances
A matter of considerable concern in the future obligations grew from a negligible amount a
is that of the sustainability of the existing fiscal little more than five years ago to more than
framework. Government spending has almost $55 billion in 2009,11 and are expected to be
doubled over the last 10 years by an amount in excess of $70 billion by 2012. While these
almost equal to the whole of the increase obligations have been largely ignored in reports
in spending over the first 125 years of the of the government’s financing, the result is that
province’s history. total financing repayment obligations in the
Operating and capital spending in 2000-2001 government sector will approach $130 billion
was about $24.3 billion, while in 2010-2011 it by 2012. While many firms and individuals in
will be about $46 billion – an increase of 90 per the private sector are moving rapidly to reduce
cent. If this is to be sustained, robust economic leveraged exposure of this kind, there is no plan
growth and strong government revenues will to do so in the B.C. government sector. According
both be required. The government’s assumption to government statements the intention is to
that the current large deficit is temporary and aggressively increase the amount of external
that the province can grow its way back to fiscal financing, particularly by structuring debt
balance is by no means certain. Concerns arise through P3s.
about whether B.C. can simply grow its way out There are many questions to be asked
of deficit and debt, and whether government about the tax system. The introduction of the
revenues will be sufficient to meet government harmonized sales tax (HST) will result in a shift
obligations in the future. If this is not the case, of a portion of the tax burden from business
then B.C. will in fact have to wrestle with a inputs to consumer purchases, resulting in an
structural deficit that could confront the province increase in individual taxation. Questions arise
with hard choices in terms of its current business about the affects on consumption spending, and
model. on the investment impacts, sector impacts and
It is generally assumed B.C.’s debt is distribution impacts of this change.
manageable. However, there is some cause for
concern. Like many corporations and individuals
today, B.C. has become highly leveraged. The
total provincial debt will have grown from $35
billion in 2008 to $55.9 billion in 2012, an
increase of 45.5 per cent. Of this, $36.7 billion
will be tax supported. 10 There has also been
a large increase in the form of new financing
arrangements in the form of public-private
partnerships (P3s) that, while imposing long-
term payment obligations on the government
sector, do not have to be reported as debt. These

Looking Forward: The BC Economy at a Crossroads 31


18% -

16% -

14% -

12% -

10% -

Modern
8% - tax systems, in order to be fair, are In the case of the federal income tax, the
designed to be progressive. Chart 17 illustrates share of income taken as tax rises more quickly
6% -
the distribution
2000 2002of average
2004 community
2006 2008 taxes as incomes increases, compared to the provincial
paid per person ab as income can taxes as a percentage tax. Thus, the federal income tax is significantly
on bc
of average community income in B.C. in 2007. more progressive than the provincial income tax.
The lower scatter line is the per cent of income The question arises as to why, and whether the
taken as provincial tax across communities, provincial tax should more closely match the
the upper scatter line is the per cent of income federal system in terms of progressivity.
taken as total federal and provincial tax, and Transfers within the federation are
the30%
difference
- is per cent of income taken as important in Canada, and of particular interest
federal
28% - tax, by community average income. to B.C. In other regions, a lower-than-average
From
26% this
- chart, one can see that the federal contribution to federal revenues is associated
tax24%
increases
- from 11 per cent of income in low- with proportionally higher federal government
income
22% - communities to 25 per cent of income in spending. In contrast, British Columbia both
high-income
20% - communities, while the provincial contributes less to and receives less from the
increases
18% - from a low of about 3.5 per cent to a federal government’s coffers than its share of the
high
16%of
- about seven per cent. population. In 2001, the province’s share of the
14% - Canadian population was 13 per cent. Individuals
2000 2002 2004 2006 2008
Chart 17: Income
ab tax
can paid as and corporations generated 12 per cent of total
percentage of per capita
on bc
community federal revenues, while 11 per cent of federal
Income, Total and provincial, spending went to B.C.12
B.C. communities, 2007 The cyclical nature of the B.C. economy has
30% -
also become evident with the events of recent
years. Some resources-dependent jurisdictions
25% -
prone to frequent cycles and non-sustainable
20% - booms in revenue have developed special “rainy
15% -
day” or government savings funds available
to mitigate the impact of sudden downturns.
10% -
Given the sudden and disruptive government
5% - cuts of the past few months in response to large
0% -
drops in revenues, the advisability of the B.C.
low med high
government doing the same is a matter of some
Per capita community income
policy interest.
Upper Scatter – Fed. and Prov. Tax Per Capita
Lower Scatter – Prov. Tax Per Capita

Source: B.C. Stats. B.C. Taxation Statistics.

$40,000 -
34,163
33,831

bc avg. $34,978
35,000 -
28,359

30,000 -
22,337
20,426

20,688

21,298

25,000 -
3220,000 - Looking Forward: The BC Economy at a Crossroads
15,000 -
10,000 -
5,000 -
0-
1 2 3 4 5 6 7
The post-recession recovery
The 2008-2009 recession hit the B.C. economy The encouraging thing is that people and
hard. The largest single year drop in the value governments are learning from experience that
of wealth and consumption generated in the government and the private sector are both
economy occurred in 2009. The same is true necessary. We can now see that new rules, new
of employment and wage income. Job losses standards, and new institutions will be needed.
have been particularly devastating in forestry And government will never again be able to
and resources, manufacturing and processing, credibly deny that it does not have a positive role
construction and the food services industries. in the success of the economy. But government
In many respects the recession resulted will need to be clear about its goals and its role.
from policy failure. It is not, as some claim, a Concern about the recovery is dominated by
blanket condemnation of private capital and four important challenges:
private markets. Deregulation of financial 1 Establishing the needed amount of
markets and the blind pursuit of private gain investment to restore employment and
by some resulted in the creation and trading wealth creation,
of investment instruments that inexorably 2 Ensuring that high-value, high-wage sectors
undermined the asset base of banks and other are sufficiently supported through policy in
financial institutions. Greed and opportunism order to ensure a successful value-creating
ran rampant as short-term private advantage in transition over the long-term,
some quarters consumed capital markets. The
3 Achieving greater diversification to
result was not only a credit collapse and the
reduce dependence on the limited drivers
worst investment and credit crisis in generations,
of the largely urban boom of the pre-
but also an almost universal recognition that
recession period – residential construction,
government is one necessary ingredient in
government-financed infrastructure, and
the success of the market economy on an
natural gas, and
on-going basis.
4 Restoring government fiscal conditions.

Looking Forward: The BC Economy at a Crossroads 33


This is not to denigrate the lower value- These fairly narrowly defined booms, or
creating sectors. They are of critical importance what might be called “boomlets,” have tended
to overall employment. But the challenge is to to mask many underlying challenges that point
get the right mix in order to remain competitive to potential longer-term problems. Further,
with the rest of Canada and the world. concentrated “boomlets” such as these make
Unless sufficient numbers of new jobs are in the economy highly vulnerable to changes in
sustainable, high-value, high-wage sectors the a small number of economic drivers, which
long-term prosperity of the province cannot be are at a high risk of not being sustainable over
assured. The right mix is needed, and to achieve the long term. Thus, with some material part
that mix there is a clear imperative to maximize of the growth in the middle of the last decade
high-value jobs. Further, the fear that the post- attributable to bubbles in consumption, housing,
recession recovery could be a “jobless recovery” government-financed infrastructure and natural
raises further concerns about ability to create gas, there is a danger the economy is not only on
needed value. a non-sustainable path, but that it has become
For a time in the mid-2000s, aspects of the highly vulnerable to changes in a small number
transition were, to some degree, masked. The of economic drivers.
forestry sector was supported by the short- The challenge is to ensure the long-term
term harvest of the pine beetle infected stands. transition maximizes sustainable value creation.
Further, elements of apparent prosperity The next few years will determine whether B.C.
appeared for a short time before the onslaught is able to make a successful transition to new
of the recession in 2008 as a result of booms value-creating industries and new sources of
in construction of housing and government- wealth that will sustain it in its historic position
financed infrastructure projects, consumption as a high-value, high-wage economy within the
spending, and natural gas production. Canadian context.

34 Looking Forward: The BC Economy at a Crossroads


Strengths and opportunities within the economy
British Columbia is in many ways well-placed to • A favourable climate and well-developed
manage the transition in the economy referred to amenities, making B.C. a natural draw to
in this paper. The province has many strengths in-migration from other parts of Canada
and assets upon which to build. These are and the external world, particularly China
important considerations when looking forward and South Asia. This in-migration has not
and when mapping out a plan for the future. only brought an infusion of highly skilled
British Columbia has a long history of and creative people. It has also brought
economic prosperity and successful economic with it a significant and continuing inflow of
development. It has been, with a few exceptions, investment capital. This has been particularly
a “have-province” within Confederation, and important for investment in residential
has welcomed people from throughout the construction; it has also contributed
world. And it enjoys many economic advantages, significantly to business investment. Capital
including: transfers from outside contribute directly to
• A relative abundance of natural resources. the wealth of the province in numerous ways.
Renewable resources, including water, • A large and successful immigrant population
forestry, wildlife, and the various aspects of that has made a large and lasting impact on
the natural environment have long provided its economic, social and political life. B.C. is a
B.C. with a comparative advantage. Managed world-recognized success story in building a
well, these can be a source of wealth and multi-cultural society that has drawn heavily
well being for citizens for generations to on the capital, skills and energy of people
come. Non-renewable resources are and from beyond its borders who have sought and
will continue to be important. The challenge found a new and successful life here.
will be to ensure that their management is
• A well-educated and highly-skilled labour
consistent with sustainability principles.
force. The province is well placed to support
high-value, high-tech, high-wage, and
knowledge-based industries with a well-
educated work force. These industries will be
key if B.C. is to maintain a competitive and
successful economy.
• Relatively low-cost access to the large and
growing Asian, and particularly the Chinese,
market. The distance between B.C. and China
by water is shorter than it is for Europe and
other parts of North America. This provides
B.C. with an important competitive advantage
in the emerging and rapidly developing
emerging markets.

Looking Forward: The BC Economy at a Crossroads 35


• A significant endowment of good farmland • The potential to achieve a low-carbon
capable of producing for the B.C. market. emissions economy relatively quickly.
The Agricultural Land Reserve has protected Competitive economies over the coming
against the loss of farmland common to decades will be those that make a fast
other jurisdictions. Locally-produced food transition to a low-carbon state. The large
is being recognized as ever more important proportion of electricity generated by B.C.
as transportation becomes more costly Hydro from large-scale public hydro ensures
and as preferences shift toward fresh, local electricity is both clean and affordable. The
products. continued ability of B.C. Hydro to supply
• A relatively well-developed and extensive clean energy can ensure clean, low-cost
system of social support and development electricity will be available long into the
services. Health care and education services future without costly subsidies. Care needs
are efficient in terms of comparable taxpayer to be taken to ensure new government-
costs, and notwithstanding recent spending supported private hydro for export will not
restraints, continue to be important assets. over time require ever-increasing subsidies,
Municipal services are generally good and higher electricity prices and ever greater
infrastructure is of relatively high quality. reliance on dirty energy to fill the seasonal
gaps that cannot be served by these facilities.
• Vigorous and empowered aboriginal people,
including First Nations people, in possession • A strong public service. This is important
of robust traditional rights, including land, in any modern economy today, and its
renewable resources and culture. With a importance will be even greater in an
population of about 170,000, the aboriginal economy facing a difficult transition. Over its
people of B.C. are extremely important in history, B.C. has developed and maintained
terms of human resources, developmental a high-quality public service, a strong record
capacity, and wealth creation. Effective in policy innovation and a history of efficient
partnerships in conjunction with historic re- service delivery. The public service in B.C.
conciliation measures have the potential to at the federal, provincial, regional and local
support the development of aboriginal lands, levels is professional, incorruptible, and
resources, governments and institutions and public interest oriented. British Columbians
to capture unique and valuable opportunities value good government committed to
in communities all across B.C. and in efficiency, fairness, pragmatism, non-
particular in remote and rural communities. partisanship, independence from special
interests, rules-based approaches, and
honesty. These values are important to
development and wealth creation.

36 Looking Forward: The BC Economy at a Crossroads


The basic challenge – posing the right questions
Numerous questions arise from the preceding • How can the transition away from carbon
review of the B.C. economy. Some, although dependency be achieved?
by no means all, of the questions that need • Is the high dependence on construction and
addressing include: infrastructure sustainable?
• What can be done to generate a shift toward
1. The challenge of good government
high value-added production?
• Is economic policy being driven by valid
assumptions and beliefs? • What are the causes and factors contributing
to the economic crisis in virtually all of the
• What is the likely fiscal situation over the
rural communities in B.C.? What can be done?
next three to five years?
• Is B.C. encountering a structural deficit? 3. Economic strategies
• Will taxes have to be raised or spending • What can we learn from the fact that the
reduced to balance the budget? How quickly forest and salmon resources were harvested
should the budget be balanced? on a non-sustainable basis for generations
• Has government contributed to a cyclical and that they likely can never again provide
bubble over the past few years, to the the basis for prosperity as they once did?
detriment of longer-term adjustments? • Can B.C. compete in the world economy as
• Have government expenditures themselves a high-wage, high value-added, knowledge-
been a source of instability in the economy? based economy? If so, how is that to be
Should B.C. develop a government “rainy achieved? How can productivity be improved?
day” savings fund to stabilize the flow of • How can exports be increased?
government spending?
• What are the new sectors that policy should
• Is the current tax system fair? Is tax reform support?
needed? To achieve fairness? To achieve a
• How can cultural industries be supported and
balanced budget?
strengthened?
• What is needed to build green economy
2. Shifts in the economy
sectors? How much can these contribute to
• Is the current direction of the economy
diversification?
sufficiently directed at value creation?
• Is it possible for the B.C. government to help
• Is the current direction of the economy
reconfigure the economy in the face of the
sustainable?
deeper structural changes at work?
• What is the significance of the downward
trend in forestry and forestry products as
reliable wealth and job generators distributed
widely throughout the province?

Looking Forward: The BC Economy at a Crossroads 37


4. First Nations and aboriginal people 6. Exports and export development
• What can be done to accelerate settlements • How much emphasis should be placed
with First Nations? on Asian trade? What policies should be
• What is needed to ensure that aboriginal pursued?
youth receive education and training to • How can investments in export industries be
participate fully in the economy? encouraged?
• How can greater aboriginal participation
in investments and ownership be made a 7. Population, immigration and the
reality? labour force
• What will be the impact of population
5. Diversification changes on the B.C. economy? Of the
• What role should diversification play in B.C.’s declining proportion of young people?
development and what approach should be Of the increasing proportion of the elderly?
taken to encourage diversification? • Will there be a developing shortage of highly-
• What sectors should receive priority in skilled new entrants to the labour force in the
future policy and planning? Should an future? Will this constrain the economy?
industrial strategy and a development plan If so what should be done to address it?
be developed? How? What should it contain? • What contribution will immigrants make to
What should be the role of government? the B.C. economy over the coming decades?
• Where will the needed investment capital What is the likely impact of the recent
come from and how can it be encouraged? StatsCan projections showing an increasing
relative size of the immigrant population in
• What can be done to stimulate and
B.C.?
encourage investments and growth devoted
to local, non-mobile capital such as farming, • What can be done to sustain the in-migration
traditional resources, amenities, the natural of people with skills and resources?
environment, and others that provide B.C. • How can poverty reduction be addressed?
with a natural advantage? How can these
sectors be encouraged?

38 Looking Forward: The BC Economy at a Crossroads


End notes
1 British Columbia. Your BC Government: 9 Statistics Canada. Population Projections of
Technology and Innovation. visible minority groups, Canada, provinces
http://www.gov.bc.ca/yourbc/high_tech/ and regions, 2001-2017.
ht_economy.html Accessed at http://www.statcan.gc.ca/
pub/91-541-x/91-541-x2005001-eng.pdf
2 Patrick Condon and Kent Mullinix.
Agriculture on the Edge. Accessed at www. 10 British Columbia. Budget 2010.
kwantlen.ca/__shared/assets/agriculture- Accessed at http://www.B.C.budget.gov.
on-the-edge12901.pdf B.C..ca/2010/

3 British Columbia Progress Board. Boosting 11 Province of British Columbia. Public


Incomes, Confronting Demographic Accounts for the Fiscal Year Ended March
Change: B.C.’s “Productivity Imperative”. 31, 2009. Accessed at http://www.fin.gov.
Accessed at www.bcprogressboard.com/ bc.ca/OCG/pa/08_09/Pa08_09.htm
archives/aTB07Productivity.html
12 B.C. Stats. Business Indicators, August
4 BC Stats. Small Business Profile, 2009. 2004. Accessed at http://www.bcstats.gov.
Accessed at http://www.bcstats.gov.bc.ca/ bc.ca/pubs/pr_bi.asp
data/bus_stat/busind/sm_bus.asp

5 Canadian Federation of Independent


Business. British Columbia Business
Barometer. Accessed at http://www.cfib-
fcei.ca/cfib-documents/Barometer-B.C.-
201003.pdf.

6 BC Treaty Commission. Treaties Will Boost


BC Economy by Over $10 Billion. Accessed
on at http://www.bctreaty.net/

7 Urban Aboriginal Peoples Study. Report.


Accessed at http://uaps.ca/

8 Statistics Canada. Immigration in Canada:


A Portrait of the Foreign-born Population,
2006 Census: Findings. Accessed at
http://www12.statcan.gc.ca/census-
recensement/2006/as-sa/97-557/
index-eng.cfm?CFID=3621895&CFTOKEN=
33703151

Looking Forward: The BC Economy at a Crossroads 39


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income.asp
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40 Looking Forward: The BC Economy at a Crossroads